Stamps.com 2013 Annual Report Download - page 12

Industry Overview
Business Market Size
Our PC Postage mailing and shipping service is currently targeted primarily at U.S. small offices, home offices, small businesses, enterprises and
high volume shippers, and within these segments we target both mailers and shippers. We believe the number of businesses that we can serve
with our current products are as follows: (1) 22.6 million sole proprietorships; (2) 4.5 million small businesses with 1 to 9 employees (typically
using our single user Pro service); (3) 1.1 million small businesses with 10 to 99 employees (typically using our Pro or our multi-user Premier
service); (4) 99 thousand medium and large businesses with 100 or more employees, which represent 1.5 million separate locations (typically
using our Enterprise service). In addition we believe there are approximately 24 million non-income generating home offices such as those used
for corporate after-
hours work or telecommuting, that we can service with our current solutions. Finally, we also can serve (typically through our
enhanced promotion online advertising channel) the individual consumer market. Data provided herein is based on recent statistics provided by
the U.S. Census Bureau and our internal estimates.
US Mail Volume
According to the USPS Fiscal 2013 Annual Report, the total USPS revenue was $67 billion during its fiscal year ended September 30, 2013. Of
this amount approximately $46 billion was represented by mail classes that are addressable using our current solution (First Class, Priority Mail,
Priority Mail Express, Media Mail, Parcel Select, international mail, and special services). The $46 billion in postage is comprised of (1) $29.5
billion in First Class mail (2) $11.1 billion in package and shipping services (3) $2.2 billion in international mail and (4) $3.2 billion in other
mailing services. We believe that some portion of this $46 billion is a potential market for purchasing and printing postage using PC Postage.
Based on the USPS Fiscal 2012 Household Diary Study, consumer-to-consumer personal correspondence mail volume was approximately 4.3
billion pieces per year (0.7 billion personal letters, 1.9 billion holiday greeting cards, 1.1 billion non-holiday greeting cards, and 0.6 billion
other). We also estimate that an additional 4.9 billion pieces per year are sent between businesses and consumers as first class primary business
advertising mail, and an additional 6.1 billion pieces per year are sent from businesses to consumers as First Class correspondence mail. We
believe that consumer-to-consumer and business-to-consumer advertising mail are two potential markets for use of PhotoStamps.
The PC Postage Certification and Regulatory Approval Process
Our technology must meet strict U.S. government security standards. Our PC Postage products complete extensive USPS testing and evaluation
in the areas of operational reliability, financial integrity and security to become certified for commercial distribution. The USPS certification
process to become an USPS approved PC Postage vendor is a standardized, ten-stage process that took the existing approved vendors years to
complete. Each stage requires USPS review and authorization to proceed to the next stage of the certification process. The USPS has no
published timeline or estimated time to complete each of the ten stages of the program. The most significant stage requires a vendor to complete
three phases of beta testing. In 1999 we were approved and launched the first software-only PC Postage service.
Our Technology
Our servers are located in high-security data centers and operate with proprietary security software. These servers create the data used to
generate information-based indicia. They also process postage purchases using secure technology that meets USPS security requirements. Our
service currently includes a Windows-based client application and web-based applications that support a variety of label and envelope options
and a wide range of printers. In addition, our applications employ an internally-developed user authentication mechanism for additional security.
Our transaction processing servers are a combination of secure, commercially available and internally-developed technologies that are designed
to provide secure and reliable transactions. Our implementation of security system hardware meets government standards for security and data
integrity. The performance and scalability of our PC Postage system is designed to allow many users to simultaneously process postage
transactions through our system. Our database servers are designed and built with industry-leading database technologies.
We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our rights in our products, services, know-how and information. We have a portfolio of issued and pending
US and international patents. We also have a number of registered and unregistered trademarks. We plan to apply for more patents and
trademarks in the future. Our issued patents have a range of expiration dates from 2014 until 2030. See Item 7.“Management’s Discussion and
Analysis of Financial Condition and Results of Operations-- Research and Development”
for the amount spent during each of the last three fiscal
years on company
-sponsored research and development activities.
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